In the wake of Brexit, the Financial Reporting Council (FRC) is urging companies to engage in dialogue with their auditors on whether specific disclosures are needed in their annual strategic report. This, for many companies, will provide a key focus for members, potential investors and financial journalists. Drafting its section on principal risks and uncertainties facing the company could be problematic as many of those uncertainties will remain unresolved for some time and will refer to opportunities that are still embryonic.

In this volatile mix, clients of the larger firms will require advice on how best to exploit new markets. The major firms have offices in countries in which their UK clients will be seeking new trading relationships. Companies in Canada, Australia, USA and elsewhere are already making tentative approaches – in one case declaring that establishing a direct trade deal with the UK will be a pleasure without having to involve 27 other countries!

Clients know that other attractive markets beckon

Many EU exporters are desperate to retain UK custom and, regardless of what politicians warn, discriminatory tariffs against the UK would be anathema. Per contra, if EU citizens and companies desire British goods, any opposing tariff will simply serve to send those goods to a tariff-free country, leaving the EU citizens worse off. What their UK clients need is guidance in expanding trading horizons, and making new introductions. Clients already know that other attractive markets beckon.

The BHS debacle

Feeding his addiction for personal enrichment

In June the FRC announced an investigation into the conduct of PwC in carrying out its August 2014 audit of BHS Limited. At the same time Frank Field and Iain Wright, Chairmen respectively of the House of Commons Pensions and Business select committees, headed a joint committee examining the BHS collapse into administration. In late July they issued their joint report, which placed primary responsibility for the collapse on Sir Philip Green, in particular on his parasitic use of BHS to feed his unrelenting addiction to personal enrichment regardless of consequences for staff or pension fund members.

Messrs Field and Wright wrote to the FRC stating their concern that the scope of its investigation should be widened to cover previous years when PwC signed off BHS accounts on a going concern basis, and audits by PwC of other companies with which BHS finances were interlinked.

In the same letter the MPs requested the FRC to “clarify what steps you intend to take to ensure the FRC’s independence in conducting these important duties.”

The regulator’s own independence

The reply from Stephen Haddrill, CEO of the FRC, was non-committal on widening the scope and setting a deadline, but as to the steps the FRC intends to take to ensure its own independence? Not a word.

Serious questions about PwC’s objectivity

Admittedly, it seems strange to seek assurance from a regulator about its own independence while it is investigating a member firm’s audit work – which would undoubtedly include questions about that firm’s independence. Perhaps Mr Field and Mr Wright looked at the FRC’s website and found that half of the 14 members of the FRC Board have previous connections with Big-4 firms, and that, of these, no fewer than five have links with PwC.

In my opinion the assurance sought by the two Chairmen was therefore most apt and the FRC’s silence is telling. We all know that independence is a state of mind beyond forensic scrutiny, but we also know that, like justice, it must be seen to be present. PwC signed off the accounts of BHS as a going concern a mere 5 days before it was sold to a former bankrupt with no retail experience for £1 – circumstances that must raise serious questions about PwC’s objectivity.

The MPs’ report raises other questions: it claims that Grant Thornton, acting for the consortium that bought BHS, was incentivised to help to conclude the sale “because they received higher fees if it went ahead – four times higher in the case of Grant Thornton”, according to latest reports.

Talk about conflict of interest – these guys have elevated it to an art form!

Are we talking about the accounting profession? Good Lord – it’s not the one I grew up in.